Economy likely to flatten out in 2010

Well the world economy is at least reverting back to a flat trend following a hard dip the last few years into negative realms.

“Economic projections indicate the economy will be back into positive territory in 2010,” said Jay Yates, Texas AgriLife Extension risk management specialist at Lubbock, during a Texas Alliance for Water Conservation Seminar in Muncy.

“The economy likely will flatten out,” Yates said. It will not get as high as it was before the recession, however. “Global economic growth is driven by developing nations and many of them took a big hit in 2009. Asia was booming and got hit, too.”

Yates said farm input costs may ease off a bit this year. “Oil has had its ups and downs, dropping to $40 per barrel in an over correction and then moving back up to sustainable levels.”

He said oil stocks are fairly large with no real shortage. “Supply is well above average.”

He said consumption likely will increase this year as the economy improves and consumers begin driving more. Energy for agriculture likely will remain steady. Yates said irrigation energy costs have ranged from $6 to $10 per acre and likely will be close to $8 per acre for 2010.

Fertilizer prices will moderate from recent highs. “Anhydrous prices peaked in 2008,” he said. “We saw a small drop in 2009 and expect a big drop in 2010.” Yates said peak high anhydrous prices were “really not as high per bushel of corn because corn prices were also up.”

He said phosphate prices will be lower than last year.

The downturn affected commodity prices, but not equally. Recessions are not as hard on grain crops as they are on fiber crops, Yates said. “During the last five recessions, going back to 1974, we see no effect on oil seeds. The 2007 biofuels mandate also helped.”

He said cellulosic ethanol remains an enigma. “Cellulosic ethanol has been “right around the corner’ since 1921. It’s not proven yet.”

Ethanol profitability is more likely with lower corn prices and he expects grain prices will follow hedge funds and remain flat during the season.

Recessions play havoc with fiber crops, especially cotton. “We see a big drop in cotton use during a recession and cotton also follows the hedge fund down. The U.S. dollar index also plays a role. As the dollar goes down, cotton prices go up.”

Yates recommended that farmers take hard looks at planting options this year and compare profitability. A Texas AgriLife spreadsheet may help with decisions. “But these spreadsheets are not meant to be predictions. Farmers need to plug their own numbers in.”

He said price estimates can be especially difficult unless growers have contracts in place. Some crops, such as guar and sunflowers, may have established contract prices that give growers a good starting point.

He said farmers should compare break-even prices among commodity options and production techniques. “Plug in estimated yield and the price needed to cover costs,” he said. “Returns above expenses may not cover all costs, including living expenses, for a lot of crops.”

Yates said the exercise helps farmers arrange financing and set yield goals that will cover expenses. He also recommended farmers take advantage of various Texas AgriLife Extension agricultural economics department resources to help make cropping decisions by connecting to http://agecoext.tamu.edu/.

On that site producers may find several resources to help calculate energy costs, nitrogen use, seeding rates for various crops, and share rent figures. The site also includes spreadsheets, market outlooks, production guides and late planting dates.

He said the South Plains Profitability Project could be a helpful resource. The project is a Texas AgriLife Extension effort supported by a grant from the Texas Cotton State Support Committee. The goals include:

Develop a spreadsheet tool to enable South Plains farmers to quickly and accurately evaluate the relative profitability of all relevant crops.

Keep the spreadsheet updated with current costs and prices.

Train producers in workshops or by other methods to effectively utilize the spreadsheet to increase their level of profitability

The spreadsheet, also part of a project supported by the Texas Cotton State Support Committee, provides the tools, data and skills to evaluate potential profitability of alternative crops.